Crypto trading vs Forex Trading – Is there Any Relationship between Them?
This is a really interesting topic to broach. It’s like trying to find a bridge between the past-present and the present-future. Is there really a link between the two? Is one better than the other? Which would be more advisable to adopt? If you’ve been involved in the money and value markets recently, the above questions must have crossed your mind at one point or the other.
They must have you wondering about which path to take when trying to make money and increase profits. While we won’t exactly be giving you hard and fast answers here, this article will point out some comparisons between the two that will help expand your understanding. You’ll also learn a few things that will point you in the right direction and help you make investment decisions that suit your economic standpoint.
Let’s kick off by running through basic introductions to the two trading systems. We will then compare them and see how they may be interdependent.
Cryptocurrencies Trading (Cryptotrading)
Cryptocurrencies are a revolutionary way of doing business that took center stage in 2009 through the advent of Natashi Sakamoto’s Bitcoin. The basic idea behind cryptocurrencies is being able to directly carry out transactions protected by cryptography.
Cryptotrading involves trying to make profits by tracking the values of cryptocurrencies. Some traders make use of crypto telegram signals to help them learn when to hold or sell. In recent times, a lot of investors have been attracted to the cryptocurrency trading scene.
The attraction is because of the incredible spikes in value that have occurred in the past few years (especially at the end of 2017). Despite the disappointing drop in the market price of Bitcoin that occurred in early 2018, there’s still great interest. Cryptocurrency trading has generally been on the rise, and this trend is expected to continue over time.
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Forex trading (Fx trading) is another form of monetary trading. It has been around since the 19th century when the gold standard was used to benchmark money and measure value. Based on the ease of international trade brought about by this standardization, Forex began to gain traction.
The proliferation of electronic transactions was what eventually brought forex trading to its present humongous scale. The speed and ease with which transactions can be conducted across borders and time zones over the internet made Forex trading way easier than it had ever been.
The major idea behind forex trading is the purchase and sale of the world’s top currencies from different nations. Based on the constantly changing values of currencies, forex traders hope to make profits by being able to purchase different currencies and sell them at higher prices.
There are various strategies and intricacies involved in the forex trade that go beyond the scope of this article. However, the takeaway from this introduction is that Forex trade involves the exchange of currencies in a bid to make the profit.
Crypto Trading vs Forex Trading – Comparisons between them
The observant reader would have observed some slight similitude between the two forms of trading. Here, we will highlight the convergence points between cryptotrading and forex trading.
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As far as liquidity is concerned, forex definitely has the higher liquidity between the two. Considering that forex is way older and has more players, there’s a lot more of fiat currency in circulation than crypto. The decentralization of cryptocurrencies offers a point of interest, and this is one of the blockchain technology benefits commonly mentioned.
In the case of fiat currencies, they are printed by central banks. And this can be done at will depending on the economic policy, strategies, and competence of the central bank. Therefore, there’s technically an unlimited supply and therefore high liquidity.
In the case of cryptocurrencies, however, the creation is done by an algorithm and released to individuals through the mining process.The only point of departure is if the crypto is pre-mined or not mineable. Most cryptocurrencies have a definite cap on their supply volume. Bitcoin, for example, has a maximum of 21 million coins, and Ethereum has also been estimated to have a cap of 100 million ethers.
In view of the above, the liquidity of cryptocurrencies is lower compared to that of forex trading. This logically leads to our next point which is inflation.
Inflation (monetary inflation) occurs when there’s a huge amount of a currency injected into the market. This is definitely a common problem that besets the use of fiat currency and by extension, forex trading.
For cryptocurrencies, on the other hand, the likelihood of monetary inflation taking place is quite low. Since the supply is controlled and has a limit, the introduction of a shocking amount large enough to cause monetary inflation is not likely.
To clarify, price-level inflation is something that can happen both in cryptotrading and forex trading.
Political stability, government spending, and some other economic factors influence the value of fiat currencies and by extension the forex trading space. On the other hand, Cryptocurrencies are more speculative in nature. The value of cryptocurrencies, and by extension cryptotrading, is dependent on the news and the attitude of the public towards it.
For example, the ethereum cryptocurrency saw a rise in price when Apple indicated some interest in the platform. Cryptotrading is therefore heavily influenced by public opinion, acceptance of the platform(s), and other such speculative factors. There is another upside in terms of ICO investments, as viability also means there is a chance to reap the gains of price appreciation.
Forex trading is a highly regulated system. There are rules and guidelines stipulating what’s acceptable and what’s not. Also, there’s often a deposit meant to secure the funds of traders, although sometimes, entire holdings can be wiped out by plummeting market value.
Cryptocurrency, on the other hand, as an emergent frontier and, doesn’t have that many regulations. And while this might make operations more flexible, it means there’s a higher risk of losing investments. Crypto trading bots provide trading insights that can also minimize risk here. However, the higher the risk, the higher the potential gains.
In the end, there’s no rigidity when it comes to deciding to either invest in forex or cryptocurrencies. However, choosing between forex and cryptotrading, therefore, comes down to a tradeoff between risks and profit. It’s all a question of interest, financial objectives, and level of risk aversion, among other factors.